Equity release in an ageing world

More can be done by the financial services industry to help older people whose needs are sometimes not fully met, according to the city watchdog the Financial Conduct Authority (FCA).

In a paper last month on improving financial services for the UK’s rapidly ageing population, the FCA found that there is scope for companies to provide additional help to the older generation, who are more likely than other groups to be vulnerable at some point.

It has urged financial services firms to look at their product and service design, customer support, and to review and adapt strategies to ensure older people are not excluded or subject to poor outcomes or potential harm.

Linda Woodall, director of life insurance and financial advice at the FCA, said:

“We hope that this paper will help drive further positive innovation in the interests of older consumers. Our findings highlight the extensive public policy challenge requiring action from firms, government, regulators and other parties to bring about improvements for older consumers who use financial services.”

Addressing the challenges of an ageing population

Many companies and sectors are already taking steps to address the challenges and opportunities that come with an ageing population.

One sector that has become increasingly innovative in recent years if the equity release sector. As the name suggests, equity release schemes enable the older homeowners, who often find themselves asset rich but cash poor, to unlock their property wealth whilst continuing to live in their property. Interest rolls up on the amount released over time, and is repaid when the homeowner dies or moves into long-term care.

According to the Equity Release Council, the trade body for the equity release sector, there are currently 78 products available from Council members, up from 24 in 2007. Many of these now allow people to make ad-hoc payments without having to pay early repayment charges, and offer people downsizing protection, so that customers can move house, downsize and repay the loan if they want to, again without being hit by early repayment charges.

Innovation is going hand in hand with rising competition between lenders, which is helping to drive down equity release rates. Latest figures from Moneyfacts.co.uk show that the average lifetime equity release rate, including both fixed and variable deals, fell to a record low of 5.19% in August, down from 5.38% at the start of the year and from 5.76% in the same 2016, while the average fixed rate fell to 5.51%, another record low and well below both January's rate of 5.72% and August 2016's average of 6.15%.

A growing sector

Almost £1.4 billion of housing wealth was unlocked via equity release schemes in the first half of this year, according to the Equity Release Council, up from £0.9 billion in the same period last year. The Council predicts that if current trends continue, annual lending will reach £3 billion for the first time this year.

“The growth of the equity release market shows absolutely no sign of slowing down. The underlying economic trends and demographics point to a long, steady growth curve.

“As the equity release market grows, there is likely to be segmentation within the industry to cater for customers from a wide variety of backgrounds.

“An interest-only mortgage customer looks very different to a traditional customer seeking to fund home improvements, who looks different to a defined contribution customer looking to supplement pension income.

“The market will need new products to meet the widening customer-base, and we're likely to see a new breed of lenders coming to market, offering different funding options and bringing further innovation to the sector.”

Find out more about equity release and whether you are eligible to release cash with the Telegraph’s free calculator.

By taking money out of your property now, a Lifetime Mortgage may reduce the value of your estate. A Lifetime Mortgage may also affect your entitlement to means-tested state benefits, but an adviser can walk you through the impact of this before you decide to proceed.

The above article was created for Telegraph Financial Solutions, a member of The Telegraph Media Group. For more information on Telegraph Financial Solutions click here.